Roll up, roll up. Who wants to join the euro? Few at the moment. Iceland, however, is an exception.
A mere three weeks into her new role as finance minister, Oddny Hardardottir has made it clear she wants the island to ditch the krona and adopt the euro. Furthermore, Iceland will begin to reel back the capital controls it implemented shortly after its banks fell into crisis in 2008. For a country less than four years removed from near economic annihilation, that kind of faith (in both the euro and the domestic economy) is impressive.
Opinion is split on whether the capital controls helped the economy. The central bank believes that they stopped $4.3-billion of krona assets -- equivalent to almost one-third of 2011 gross domestic product -- from being sent offshore. Detractors argue that they discouraged foreign investors.
Now it matters little. Unwinding the capital controls, and accelerating the drive towards European Union membership, show that Iceland’s leaders have confidence in their economy. After all, a switch to the euro would negate the capital control policies used during its crisis. And had Iceland been part of the euro zone during this time, it would have been politically difficult for the country to refuse to pay the €4-billion of Icesave deposits owed to the UK and Dutch governments.
Assuming that Iceland continues to improve its budget -- the 2011 deficit should be about 6 per cent, says the Economist Intelligence Unit, down from 10 per cent in 2010 -- there are still hurdles to EU membership and euro-adoption. The first is the country’s desire to keep a tight hold of its economically vital fisheries. Another is the hastening of the Icesave recompense -- an issue that may end up in court. If Iceland can resolve these issues it will join the EU in relatively good shape and then be able to take advantage of the euro zone. Talk about rewriting the book on crisis management.